HOUSE COMMITTEE ON THE JUDICIARY

Floor Book Memo

Com. Sub. For H.B. 2820

(February 24, 2015)

SPONSORS: Shott

TITLE: All relating to affirmative defenses against mechanics’ liens.

DATE INTRODUCED: February 19, 2015

CODE REFERENCE: §38-2-21 Effect of payment by owner to contractor or subcontractor; notice by subcontractor, supplier, materialman, architect, engineer, equipment providers, laborers, and others; notice by building permit, effect of notice.

§38-2-34 Time within which suit to enforce lien may be brought; right of other lienors to intervene.

IDENTICAL/SIMILAR BILLS:

SUMMARY ANALYSIS: The purpose of this bill is to provide certain exemptions from homeowner's assertions of affirmative defenses against mechanic's liens, provided that the homeowner has been provided actual notice that such a lien may be asserted if the potential lienholder is not fully compensated.

FULL ANALYSIS:

I. SUBSTANTIVE ANALYSIS

A. EXISTING LAW: The current law, passed in 2014, provides that homeowners facing mechanics’ liens for building supplies and materials for which they have already paid contractors have an affirmative defense. This was designed to apply in situations where an “owner is not indebted to the contractor or is indebted to the contractor for less than the amount of the lien sought to be perfected.” In the latter situation, the affirmative defense would only apply to the extent of the owner’s prior payment(s) to the contractor seeking to perfect the mechanics’ lien. In other words, the owner would have an affirmative defense up to all payments made to the contractor.

B. THE BILL: The bill is intended to close a loophole in the existing code section; i.e., that a homeowner may know such a lien could be applied against their property and could yet evade the lien under a statute designed to shield the unsuspecting and unaware.

The bill provides that if actual notice is given to the owner pursuant to the terms therein, the owner shall not be afforded the protections provided by the section. Notice can come in two specified forms: 1) Within ten business days of the first performance of labor or services or provision of equipment or materials or supplies, the subcontractor, supplier, materialman, architect, engineer, equipment providers, laborers, and other who wish to preserve their mechanic’s lien rights shall serve notice by certified mail on the owner of the property, and by posting in a conspicuous place on the job site a notice of intention to preserve mechanic’s lien rights. The notice shall be sufficient if it is substantially in the following form, and must be prominently disclosed in uppercase bold lettering of at least 12-point type and be sufficiently clear so as to be readily understandable:

“Please take Notice that your home and real estate are subject to a mechanic's lien for any unpaid balances due to subcontractors, suppliers, materialman, architects, engineers, equipment providers, laborers, and others. It is the owners’ responsibility to see that all bills are paid. If such bills are not paid, it is possible that your home may be sold to cover such bills, after applicable legal proceedings.”

Issuance of this Notice by one subcontractor, supplier, materialman, architect, engineer, equipment provider, laborers, etc; is designed to inure to the benefit of all other persons having to give notice on the same property.

2) Where building permits are required, the city, county, or municipality that is responsible for issuing building permits shall give notice in the building permit of the right of subcontractors, suppliers, materialman, architects, engineers, equipment providers, laborers, and others to file a mechanic’s lien. Notice given on building permits shall include the same format referred to above, and shall require acknowledgment from the owner in the form of a signed receipt.

The Bill further provides explicitly that the property owner shall not have affirmative defenses or affirmative partial defenses provided for if this notice is provided.

C. COMMITTEE AMENDMENTS

The Committee Amendments 1) clear up the definition of dwelling which was awkwardly expressed in the original legislation and 2) make clear that persons are acting “to avoid affirmative defenses provided “

II. COMMENTS

            A. CONSTITUTIONAL ISSUES: None identified.

B. GOVERNMENT AGENCIES AFFECTED:     Courts/Counties/Municipalities

            C. TITLE ANALYSIS: The title appears to be within constitutional parameters.

            D. DRAFTING ISSUES OR OTHER COMMENTS: None.

            E. EFFECTIVE DATE: Regular